Maintain ‘reduce’ on Lupin Pharma: Kotak

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Published: March 11, 2016 12:10:17 AM

Lupin Pharmaceuticals (LPC) announced the completion of GAVIS acquisition in the US.

Lupin Pharmaceuticals (LPC) announced the completion of GAVIS acquisition in the US.

We believe GAVIS is the right strategic fit for LPC and see a reasonable pipeline emerging from it. The acquisition is highly synergistic with LPC with over 50% of its pending

ANDAs spread across topicals and controlled substances, areas where LPC has historically struggled to build its own internal pipeline.

We believe the focus will now shift to execution of the pipeline, though we see execution hurdles in LPC achieving its stated revenues of over $300 million by FY2018. Maintain ‘reduce’.

In July 2015, Lupin announced the acquisition of Gavis Pharma and Novel Labs combined for $880 million at 9x CY2014 EV/sales and 30x EV/EBITDA.

The acquisition is funded through a mix of internal accruals and low-cost debt (3-4%) that ensures that the transaction will turn EPS accretive from day-1.

Gavis had revenues of $96 million in CY2014 and we understand that it was on track to achieve $120 million in CY2015, with LPC aiming for 2.5X growth in sales by FY2018 to over $300 million. Gavis has a strong pipeline of 62 ANDAs pending approval (net of 8-10 overlaps) spread across oral solids (17 ANDAs) and other dosage forms such as powders, liquids, topicals (15-17 ANDAs) and controlled substances (15 ANDAs), thereby having minimal overlap with LPC’s internal efforts.

Lupin is currently trading at 27X and 22X FY2017 and FY2018 EPS respectively, at a premium to peers with the market betting on higher accretion from Gavis.

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